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Thursday, October 03, 2013

Hawaii Supreme Court Says No Arbitration Without Meaningful Consent

By Paul Bland, On Twitter @PblandBland

This is a case with very painful facts – according to the complaint, a Kaiser patient went in to see his doctor and was told he had a particular type of cancer that his doctor wasn’t familiar with, but would do “internet research” about, that he might die within a month or so from the cancer. Then the doctor proposed surgery. The patient decided to go to another hospital (Duke) to get a second opinion (you can see why that would have seemed like a really good idea), and discovered he had a different type of cancer which should be treated a different way. (Duke’s treatment worked.) Kaiser refused to cover the costs of the treatment at Duke, saying it was “elective, non-emergency, non-urgent care.” (Query about what illness would be more “urgent” than one that might kill you in a month. The guy sued Kaiser, which (naturally) tried to force him into arbitration.

Kaiser's arbitration clause, by the way, like so many of them, would have required the plaintiff to pay substantial costs to arbitrate his case, has sharp limitations on the plaintiff's ability to take discovery, and has onerous secrecy provisions.

The trial court enforced the arbitration clause, but the Hawaii Supreme Court reversed, finding in a great opinion that there had been no mutual assent or meeting of the minds. The court noted that the burden was on Kaiser, as the party moving to compel arbitration, to demonstrate that the patient had assented to arbitration. The court held that to form an agreement to arbitrate, a contract must be unambiguous as to the intent of the parties to submit disputes to arbitration.

The court points to a variety of useful facts in finding that there was not assent: the enrollment form referenced “terms and conditions,” but the group agreement had no section with that title; there was no signature line for an applicant to acknowledge having read or received the documents; that there was no evidence that the agreement was ever provided to the HMO member; the arbitration clause was substantially amended but the changes were not included in communications to the HMO members in a “Summary of Important Changes.” Basically, Kaiser's argument amounts to this: the patient could have found it if he's pestered his employer for every piece of paper related to his health plan and read through it. And the Court found this unpersuasive -- no real person would have had meaningful, realistic notice that they were supposedly giving up these important rights.

Having lost on consent, Kaiser then offered a grab bag of arguments for how the court might enforce the arbitration clause even where the member didn't agree to it. So Kaiser argued that the HMO member’s employer was his “agent” for the purpose of agreeing to arbitration; that he was a third party beneficiary of a contract between his employer and Kaiser that provided for arbitration; that he was estopped from pointing out that he’d never agreed. The Court rejects each of these arguments for a variety of legal reasons; none of these technicalities was sufficient to supplant the idea that arbitration is supposed to be a matter of consent, for people who agree to it.

The bottom line is that “In this case, the Enrollment Form that Michael signed did not reference the arbitration agreement and the record does not establish that Michael was otherwise informed of the existence of the arbitration agreement, much less that he assented to it.

Congratulations to Matt Winter of Davis Levin Livingston in Honolulu for this fantastic achievement. This is one of the best decisions I’ve seen all year.